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David M. Reynolds
Professor Tammy Forbes
English 112
2 May 2011
A Federal Sales Tax Should Replace the Federal Income Tax
In recent debates regarding proposed solutions to the United States’ federal budget
deficit, the politicians in Washington have discussed major changes to the revenue system,
including an end to the Bush-era tax cuts for wealthy American families. The average American
does not need to look any further than the evening news or the morning paper to see that most of
the lower and middle classes of America tend to agree that these tax cuts need to be eliminated.
However, the wealthiest Americans (whose taxes would be the ones most affected by these
changes) feel justifiably threatened by the discussion over ending these tax cuts because they feel
they are entitled to their wealth through their hard work. Because of the conflicts of interest
between the lower and upper classes of society, the debate continues to rage over who should
have to sacrifice the most for the reduction of the deficit and debt. The best compromise is so
astoundingly simple in concept that putting it into practice should be equally simple: families of
all income levels are taxed for their expenditures, not their incomes. The government should
eliminate the federal income tax system in favor of a federal sales tax because a federal sales tax
would substantially simplify the tax code, it would be fairer to families and individuals of all
income levels, and it would reduce the current budget deficit and end the current debate (and
prevent any future debates) over income tax cuts or increases.
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One of the most obvious problems with the current tax code is the overwhelminglyconvoluted nature of the code itself. If the Internal Revenue Service could end the federal
income tax in favor of a sales tax, April 15 would be just another day instead of the most dreaded
and angst-ridden day of the year. This angst is not the only negative effect of the complex tax
code, either: the current system has some damaging financial effects on the average American
family. The federal government routinely offers certain incentives and options, but because the
code and forms are so complicated, many Americans are missing these opportunities due to
uninformed decisions (President’s Advisory Panel on Tax Reform 3). In her annual report to the
IRS, taxpayer advocate Nina E. Olson both agrees with this viewpoint and further denounces
federal tax code’s intimidating complexity, which her report calls “the most serious problem
facing taxpayers” (qtd. in Internal Revenue Service, par. 4).
In light of these statements, the problems with the income tax system become painfully
apparent, and they show the system for what it is: flawed, and flawed arguably beyond repair.
The government needs to stop trying to shore up the walls of a system that was built upon
quicksand in the first place, and it needs to replace the current system (which is flawed by its
own complexity) with something simple: a federal sales tax. No longer would people be worried
about how many dependents to claim, how to itemize deductions, or whether to use the 1040 or
the 1099. Employers would no longer have to waste time, paper, or postage to print and send
yearly W-2 forms. Much-dreaded tax audits would become a thing of the past.
The substantial reduction in complexity would not be the only benefit from a federal sales
tax; in addition to being substantially less complex than the income tax, a federal sales tax would
be more transparent and fair for everyone. The current tax system, because of its opaque and
convoluted nature, is invariably unfair to a significant group of American taxpayers. People on
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both sides of the political spectrum can easily identify parts of the tax code that they find to be,
for lack of a better word, imbalanced. Its complexities aside, the income tax is excessive to
many citizens who, on a daily basis, struggle to pay their bills. While the federal government
does have the constitutional power to levy taxes, the income tax is overly bureaucratic and forces
many thousands (and, indeed, millions) of Americans to have significant portions of their regular
paychecks withheld. Many American families are struggling daily, and although they would still
be taxed through a sales tax, their taxes would be as transparent as their sales receipts at their
local grocery stores. The current system gives rise to excess. The sentiment of this excess is
evident in the statements of actor, TV personality, and Internet phenomenon figure Chuck
Norris, who notes the following:
The Founders would have been horrified at the bloated federal
bureaucracy [Americans] have now and the maze of taxes [they] have to
navigate: income taxes, employment taxes, … etc. It was excessive
taxation that drove the Founders to rebel in the first place. (par. 2)
This unfairness is perpetuated by the system’s ability to remain shrouded behind its cloak
of complicated forms and itemized deductions. With a sales tax, however, no one could
complain about having to pay a proportionally higher tax than anyone else; every individual
would be taxed based on what he or she spends rather than on what he or she earns. Waiters and
waitresses would no longer have to claim their hard-earned tips. Wealthy Americans would not
be penalized just for being successful. Lottery winners could fully enjoy their winnings. The list
of benefits is limitless.
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Some would undoubtedly argue that changing to this system would do irreparable
damage to the nation’s economic strength because it would discourage people from investing in
the national economy (i.e. spending money on domestic goods and services). This, however, is a
flawed argument because the income tax is already stifling consumer spending. A perfect
example of this is the 1986 Tax Act, which closed tax shelters for the commercial real estate
market. Immediately after this tax shelter was closed, the nonresidential real estate market
shrank by approximately 23 percent (Saxton 10). This illustrates a simple concept: income tax
causes economic asphyxiation. A federal sales tax would solve this problem in two ways. First,
average people would be able to make investments in the economy without fear that the returns
on those investments would be taken away by the income tax. Second, the investments in the
economy would go directly to the economy (and the taxes on those investments, subsequently,
would go straight to the Treasury instead of through the IRS).
The possibility that the sales tax could revitalize American consumerism should be very
enticing to the legislators responsible for enacting such a tax. While the capitalist boost is
certainly a nice bonus of the sales tax, it is not even the most important part of the sales tax’s
logic. The most critical reason for the government to enact a federal sales tax is that it would
significantly reduce the federal deficit and possibly, with time, eliminate it altogether. This is
apparent through simple arithmetic. Quoting figures from the Bureau of Economic Analysis, the
Chief Economist of the U.S. Department of Commerce, Mark Doms, reported that on the energy
market alone, American consumers spent $583.4 billion in 2010 (par. 4). Assuming a rate of six
percent, a federal sales tax in 2010 would have raised about 35 billion dollars – on the energy
market alone. While a revenue of $35 billion may not sound like much when Congress discusses
a budget deficit of trillions, the sales tax on the nation’s gross domestic product (assuming, of
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course, an expenditure-based GDP) as a whole would be substantially more significant. The
sales tax would adjust with inflation rather than contribute to inflation. It would put an end to the
debate (and the nauseating political rhetoric accompanying it) over how Congress should handle
the federal budget deficit, at least on the revenue side of the equation.
Very few would say that taxes are not a necessity in some fashion; while not many
citizens particularly like taxes, most grounded individuals understand the simple economic
concept that all government services, from community colleges to public safety, depend upon
government funds to operate – and that those funds come from tax-generated revenues.
However, the disagreement lies in who most people believe should be paying those taxes. A
federal sales tax would end that disagreement. Using an individual’s income factors as a basis
for determining his or her taxes is an economic absurdity; the true backbone of America’s
economic strength lies not with what its citizens gain, but with what they invest.
The system
that America currently has is faulty. It is undermines itself with its own convolution. It is unfair
to the wealthy, the underprivileged, and everyone between the two. It is the center of a debate
that wastes the time, effort, and resources of Congress. A federal sales tax would solve all of
these problems; it would be simple and transparent, it would treat all citizens equally, and it
would end all of the surrounding debate and give America’s legislators time to focus on the
thornier budget problems like government spending. With a federal sales tax, people could
spend their once-withheld paycheck money on America’s future.
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Works Cited
Doms, Mark. New Tax Cuts Boost Personal Income. Washington, DC: Economics and Statistics
Administration, 2011. Web.
Internal Revenue Service. National Taxpayer Advocate Urges Tax Simplification and
Compassionate Treatment of Taxpayers Hit by Recession. 2009. Web.
Norris, Chuck. “America Needs the Fair Tax System.” In W. Dudley (Ed.), Opposing
Viewpoints. Social Justice. San Diego: Greenhaven Press, 2010. Web.
President’s Advisory Panel on Tax Reform. America Needs a Better Tax System: Statement by
the Members of the President’s Advisory Panel on Federal Tax Reform. 2005. Web.
Saxton, J. (2007). Tax incentives, investment and economic growth. Washington, DC: Joint
Economic Committee, United States Congress, 2010. Web.